Small Business, Enterprise and Employment Bill

Written evidence submitted by Richard Dunstan (SB 20)

1.I have worked as a policy analyst on employment issues since 2000. I was employment policy officer at Citizens Advice from 2000 until early 2013, and have since worked for Working Families and Maternity Action. I also write for the employment law and policy blog Hard Labour. This submission is made in my personal capacity.

2.Since 2000, the main focus of my work has been vulnerable (e.g. low paid, non-unionised) workers and the difficulties they face in enforcing their statutory workplace rights. In this submission, therefore, I confine my comments to clauses 136, 138 and 139 of Part 11 of the Bill.

Clause 136: Financial penalties for non-payment of an ET award

3.Clause 136 provides for the imposition of a financial penalty of up to £5,000 on an employer who fails to pay a tribunal award (or Acas-conciliated settlement), the aim being to discourage such non-payment.

4.During my time at Citizens Advice, I researched and wrote three reports on the widespread non-payment of tribunal awards: Empty justice (2004); Hollow victories (2005); and Justice denied (2008). So I warmly welcome the financial penalty mechanism provided for in clause 136, not least because it is pretty much the same mechanism that I proposed to ministers in 2012, during the passage of the then Enterprise & Regulatory Reform Bill. Ministers were not (sufficiently) impressed by the idea then, but pressure from the opposition front bench did lead to BIS minister Jo Swinson commissioning further research on the issue (replicating the research commissioned by the Ministry of Justice, in direct response to Justice denied, in 2009). And the damning findings of that BIS-commissioned research have evidently led to a ministerial change of heart.

5.Some have been quick to note that clause 136 would not solve the problem of non-payment of awards and Acas settlements. Indeed it would not, but then no single measure would, as the problem is extremely complex. There are other steps that BIS and the Ministry of Justice could and should take, such as ‘naming & shaming’ those employers who fail to pay up. But, by creating a meaningful financial disincentive to non-payment of an award, clause 136 could be expected to at least reduce the rate of non-compliance.

6.Except that, the kind of relatively low-value claim for e.g. unpaid wages, holiday pay and/or notice pay that has in the past often culminated in a hollow victory for the claimant when the employer fails to pay up, is also the very kind that has been eviscerated by the hefty, upfront tribunal fees introduced by the Ministry of Justice in July 2013.

7.Not surprisingly, vulnerable workers subjected to wage theft by a rogue employer have proven to be reluctant to throw up to £390 of good money after bad. So the number of claims for unpaid wages etc. has tumbled, from an average of 4,587 per month in the nine months immediately before the introduction of fees, to an average of just 1,073 in the nine months up to June 2014.

8.In short, thanks to the tribunal fees introduced in July 2013, the longstanding problem that clause 136 seeks to (partly) address is no longer quite the problem that it was. So, while BIS might now seek credit for trying to close the stable door, most of the horses have been galloping around the fields since July 2013, and will continue to do so until such time as the tribunal fees regime is substantially reformed.

Clause 138: Maximum financial penalty for breach of the NMW

9.Clause 138 provides for an increase in the maximum financial penalty that can be imposed by HMRC for breach of the national minimum wage, from £20,000 per employer (technically, £20,000 per Notice of Underpayment), to £20,000 per underpaid worker.

10.On the face of it, clause 138 is welcome. Fifteen years after its introduction, there can be no excuse for not paying the NMW. But the practical impact of clause 138 would be negligible, for two reasons.

11.Firstly, as the average underpayment (and penalty imposed) per worker was just £205 in 2013-14, the number of employers who pay even the current maximum penalty of £20,000 is small: just 52 (eight per cent) of all 652 employers penalised in 2013-14. So the number liable to receive a penalty anywhere near the proposed maximum of £20,000 per underpaid worker would be even smaller.

12.Secondly, HMRC already can in effect impose a penalty of up to £20,000 per underpaid worker, by the simple expedient of issuing more than the normal one Notice of Underpayment to the employer. This practice was adopted in March 2014, when the penalty percentage was increased from 50 per cent to 100 per cent of the total underpayment, and the maximum penalty was increased from £5,000 to £20,000. (I am not aware of any published figure for the number of employers issued with more than one Notice of Underpayment since March 2014, but the Minister may be able to provide that figure to the Committee).

13.In short, all that clause 138 would do is align the statutory power to set the maximum penalty with the practice adopted by HMRC in March 2014 (in order to meet the Prime Minister’s announcement in November 2013 that penalties would be both increased and imposed on a ‘per worker’ basis). According to the associated BIS Regulatory Impact Assessment, this would save HMRC some £250,000 per year in administrative costs associated with serving a small number of employers with more than one Notice of Underpayment.

14.However, that would be the sum total of the impact of clause 138. And, as it is not clear from the Regulatory Impact Assessment how HMRC (or BIS) arrived at the total costs figure of £250,000, even that figure might well be an over-estimate.

Clause 139: Banning exclusivity clauses in zero-hours contracts

15.According to a BIS facts sheet on the Bill, clause 139 would "make exclusivity clauses in zero-hours contracts invalid and unenforceable," the aim being to address the abusive use of zero-hours contracts.

16.Such exclusivity clauses – which prevent an individual on a zero-hours contract from working for a second employer, even when no work is on offer from the first – are easily labeled as unfair. But even if clause 139 achieved its aim of making such clauses "invalid and unenforceable" – a rather large ‘if’ – it would still have little if any impact on the abusive use of zero-hours contracts, for the simple reason that such exclusivity clauses are far from essential to that abuse.

17.In practice, all an abusive employer has to do is let it be known that taking work with another employer will result in no further work being offered. Employment law specialist Mark Tarran has put it this way:

Zero-hours contracts before [clause 139]: "If you work anywhere else you will be in breach of contract and I won’t give you any more work."

Zero-hours contracts after [clause 139]: "If you work anywhere else you won’t be in breach of contract but I still won’t give you any more work."

18.It is worth noting that, according to BIS, only 125,000 – about one in ten – of the estimated 1.2 million zero-hours workers have an exclusivity clause in their contract. And why would employers not have bothered to insert such a clause into nine out of ten zero-hours contracts? They didn’t, because they don’t need to. Take away the exclusivity clause, and the worker is still on a zero-hours contract, with no guarantee of work from one week to the next. And that is what makes them vulnerable to abuse.

19.To my mind, zero-hours contracts are best viewed as one (very nasty) symptom of a killer disease: the abuse of vulnerable workers by exploitative employers. That disease has become more prevalent and more virulent in recent years. But treating a symptom will not cure the disease, even if makes the doctor feel more comfortable.

20.I hope that these brief comments will prove helpful to the Committee’s deliberations, but would be very happy to elaborate on any point.